Prophecy bets on Nevada vanadium as world stockpiles vanish

China’s metamorphic rise to developed nation status has resulted in hundreds of policy changes. One little noticed change was a mandate to construction companies to use higher tensile strength steel rebar. The policy change has sent the vanadium market into a tailspin.

As a result, steelmakers have gobbled up all existing inventories, meaning the only vanadium you can buy is currently underground. That was the reason why John Lee, a seasoned mining entrepreneur, discarded opportunities in Mongolia and Bolivia and decided to place all bets on a rich vanadium deposit in the hills of Nevada through Vancouver-based Prophecy Development Corp. (TSX: PCY | OTCQX: PRPCF).

The China steel rebar mandate is not the only reason why Lee is optimistic. Scientists believe vanadium redox flow batteries (VRB) may be a better way of storing grid energy than lithium-ion. Robert Friedland, the legendary mining investor, is investing in vanadium flow batteries through his Beijing-based investment firm Pu Neng.

“The big takeaway is that we have acquired the best vanadium project in North America,” Lee said. “The price has already gone bananas.”

Vanadium is already showing the streakiness of the electrical metals, outpacing gains in lithium and cobalt to shoot up to $14 a pound currently, from $4/lb in 2017 and $2.50 in in 2016. Demand is such that finding off-takers for Prophecy’s vanadium “is the least of our concerns” Lee said.

Vanadium is quite a small market with annual production of 75,000 tons to 80,000 tons. Adding 0.5% vanadium to steel doubles its strength, and that’s where 85% of vanadium goes. Like lithium, the expected choice of vanadium as the metal of choice as grid storage batteries would require an exponential increase in supply.

Sumitomo Electric Industries (SEI) installed a 60 megawatt VRB system on the Japanese island of Hokkaido in 2016 and plans to increase that capacity fivefold by 2020. The world’s largest VRB battery, with a whopping 200 megawatts of capacity, is currently being built in China.

Power storage is the key to allowing jurisdictions around the world to go 100% renewable, by resolving the issue of the intermittency of wind and solar power at different times of day. At present, VRB seems like the most viable option for states such as California, Hawaii and Massachusetts to go 100% renewable by 2040.

Steel demand will also continue to be strong. China’s steel rebar decision in the aftermath of damaging earthquakes in the west of the country means that Chinese steelmakers must now add 36 grams of vanadium to 1,000 tons of rebar steel. That still falls short of 73g/t in Europe and 95g/t in the United States, according to Metal Bulletin.

More than half of vanadium supply comes from China, and there is zero production in the US. Prophecy’s Gibellini project is located in the Battle region of Nevada, home to more half of the US gold mining production capacity.

Lee, who has invested more than $3 million in Prophecy in personal funds, acquired the project from the previous ownership with a completed feasibility study completed by AMEC Plc. Prophecy plans to update the feasibility study and resume permitting in 2018. Gibellini’s oxide ore is suitable to produce vanadium pentoxide, featuring a low iron content, that has a high suitability for future storage batteries.

“We are getting the project to the last quarter of a mile in terms of permitting,” Lee said.